We propose a simple and general model of experimentation in which reaching untried levels of a stock variable may, after a stochastic delay, lead to a catastrophe. Hence, at any point in time a catastrophe might well be under way, due to past experiments. We show how to measure this legacy of the past from prior beliefs and the chronicle of stock levels. We characterize the optimal policy as a function of the legacy and show that it leads to a new protocol for planning that applies to a general class of problems, encompassing the study of pandemics or climate change. Several original policy predictions follow, e.g. experimentation can stop but resume later.

We show that even in the absence of data on individual decisions, the distribution of individual attitudes towards risk can be identified from the aggregate conditions that characterize equilibrium on markets for risky assets. Taking parimutuel horse races as a textbook model of contingent markets, we allow for heterogeneous bettors with very general risk preferences, including non-expected utility. Under a standard single-crossing condition on preferences, we identify the distribution of preferences among the population of bettors and we derive testable implications. We estimate the model on data from U.S. races. Specifications based on expected utility fit the data very poorly. Our results stress the crucial importance of nonlinear probability weighting. They also suggest that several dimensions of heterogeneity may be at work.

A seller can trade an endowment of a perfectly divisible good, the quality of which she privately knows. Buyers compete by offering menus of nonexclusive contracts, so that the seller can privately trade with several buyers. In this setting, we show that an equilibrium exists under mild conditions and that aggregate equilibrium allocations are generically unique. Although the good for sale is divisible, in equilibrium the seller ends up trading her whole endowment or not trading at all. Trades take place at a price equal to the expected quality of the good, conditional on the seller being ready to trade at that price. Our model thus provides a novel strategic foundation for Akerlof's (1970) results. It also contrasts with competitive screening models in which contracts are assumed to be exclusive, as in Rothschild and Stiglitz (1976). Latent contracts that are issued but not traded in equilibrium play an important role in our analysis.